Do you know the average credit card debt of in America is $16,000? Whooh, that's a lot of credit card debt to begin with. The reality is that some people use credit card to pay other debts. It makes sense though, right? Kinda.

Why kinda? Well, credit cards are so easy to get nowadays. Having said that, they're not the best to use to pay off another debt.

A lot of people I know have contemplated on getting or got a personal loan or a credit card to finance their immediate needs. Some of them got both.

There has been a great deal of debate on which is better. The short answer is it depends.

I say that “it depends” because each person’s situation is different. Sometimes, getting a personal loan is better and sometimes, credit card is better.

But at the end of the day, these debt instruments address the need for quick cash even though the terms and conditions of getting and using them are different.

The truth is there’s one thing that’s for sure is common between these two options, that is, interest and principal.

If you get either one or both, you definitely get to pay a price for the “fairly quick” access to these instruments. You return the money you borrow along with interest.

Before we dig deeper on why personal loan is better (at times) than credit cards, let me define what these two terms are.

It is an installment based debt, which you can pay off within 2-5 years depending on the amount of the loan you get and the amount of money you can pay easily per month.

The monthly installments will include the interest and the principal. Each month, you pay the same amount but the ratio of your principal and interest payment changes in favor of the principal.

This only means that your principal payments will go up and interest payment will go down even when you’re paying the same amount every month.

If you are looking for short term financing then personal loan is the answer. If you have a not-so-good credit, there are personal loans for bad credit, which can or may really help you.

What are Credit Cards?

Credit cards are one of the most costly mediums of financing. The debt taken in form of credit cards is sometimes termed as revolving debt.

Many times, the interest is also double in credit cards in comparison to that of personal loans.

The due date of your credit card is the deadline for you to pay the minimum balance. The interest in credit cards is calculated on the basis of your daily average balance. In one sense, the more balance you have, the higher the interest (calculated in dollars) that you are going to pay.

Choosing between both of the options (credit cards and personal loans) is a tough decision to make.

With credit cards, you can definitely pay the minimum. Having said that, it will take you a very long time and you’ll likely incur and pay higher interest (in dollars) over time than when you get a personal loan.

This means you can stretch out your payments, which may or will help you pay a little at a time. This also means that you have more freedom to pay your debt over a period of time.

The same things cannot easily be said with personal debts.

With personal debts, you are required to be in a structured payment plan. This means that you pay a set amount each month for a set number of years.

This means you can’t just stretch out your payments the way you can with credit cards.

Does it mean credit cards are better than personal loans?

Well, the answer is not always.

Personally, I prefer personal loans because I am forced to pay the same amount of money each for such a short time period.

When my wife and I were paying off our debt, we took out a personal loan to pay off our credit cards. It sounds bad to get another debt to pay off another one. It’s not really…well, not at all.

So, why is it not in your best interest to use payday lenders or auto title loans instead of personal loans or credit cards? It's because these lenders are notorious of allowing you to use their money in exchange of way higher interest rates. That's a No No if you want to get out of debt.

We took out a personal loan because the interest rate was half of what the credit card companies were charging us. Since the interest payments were cut in half, we were able to free up some money to pay additional in our credit cards.

Personal Loans Vs Credit Cards: Which Is Better?

Probably by now, you’ve heard and read so many things about credit cards from different sources.

Probably by now as well, you haven’t really heard and read so many things about personal loans especially personal loans for bad credit.

To further clarify the confusion and help you make your best decision, here is a quick “personal loan vs credit cards” section. This will highlight all the times a personal loan helps you in a better way than credit cards.

Personal loan is great if you have excellent credit (or bad credit)

Personal loan comes with, at times, a lower interest rate than that of a credit card.

If you have good credit, then, repaying the money you borrowed with low interest seems a perfect idea.

Personal loans for bad credit or those with bad credit are also fairly good. Since many credit card carry higher interest rates, you can use personal loans to consolidate your debt and be on a much lower interest rate.

When my wife and I were in the process of paying off debt of ours, I borrowed money through a personal loan to consolidate all my credit cards and basically slashed in half the interest rate of the credit cards I had back then.

On the battle between personal loans vs credit cards in this case, personal loans won.

Personal loan money is accepted anywhere

Money you get from a personal loan is money not plastics.

While credit cards do almost the same thing that money does, they certainly have limitations.

For example, you can’t use your credit cards to pay cash to the friends and family members you owe money to. In many cases, you can’t pay rent using your credit cards because many rental companies or landlords accept either checks or cash.

Money you get through personal loans can be used anywhere.

You can take it anywhere with you and even get it converted to another currency if you are moving outside your own country.

In a nutshell, the amount you get is handy and you can do whatever you wish to with it.

On the battle between personal loans vs credit cards in this case, personal loans won.

Personal loan means fixed interest rate

When the amount of payment per month fluctuates in credit cards, the interest also moves along with it.

The interest rate is also different on various purchases (i.e. interest rates on promotions and regular purchases). This does not happen in a personal loan (if you make your payment on time though).

Most companies have a fixed rate for personal loans and only charge extra if the payment is delayed for more than 10 days pass the deadline.

This makes personal loans for bad credit even better as the interest rate does not increase. With credit cards, the rates can fluctuate and people with bad credit can get into a deeper debt because of these fluctuating interest rates.

On the battle between personal loans vs credit cards in this case, personal loans won.

Personal loan can get rid of debt easier and faster

I know you can make additional payments on your credit cards but it doesn’t necessarily mean that such payment will go directly to principal.

With a personal loan, you may be able to designate additional payment as payment on the principal. This means that the more you pay the principal, the less interest (in dollars) you pay in total for the life of the loan.

Having said this, you may want to read the fine print or the terms and conditions of the loan agreement. Some loans prohibit over payment, some charges extra fee when you do that, and some with other restrictions and limitations.

The overall reasoning why I prefer, at times, personal loans over credit cards is because of the interest rate.

Always make sure to ask over payment matters when you first get your personal loan. You don’t want to pay more in the end because you are getting penalized for repaying the loan early.

On the battle between personal loans vs credit cards in this case, personal loans won.

In a lot of ways, it might seem like personal loans and credit cards are somehow the same.

You both have to pay interest and principal and they both need to be paid back in installments at the end of the month. Having said that, these two debt instruments are different in so many aspects.

Most of the time, I prefer personal loans over credit cards. You’ve heard the phrase “credit cards are evil” but you haven’t heard the same with personal loans, have you? There are reasons for that.

With personal loans, you are your own boss in the repayment of the debt that you have taken as you decide the time span you want to pay it back. Personal loans allow you to make budgeting so easy because you pay the same amount every month.

Of course, personal loans also have downsides (e.g. strict payment every month versus the minimum payment due with credit cards).

Getting into a debt is a nightmare and getting the debt off your shoulders is another bigger nightmare if you don’t know where to start or how to do it.

My wife and I decided to go with the getting a personal loan to help us get out with paying the credit cards we were not able to negotiate the interest rates.

We were right in our decision because we managed to pay our debt off early (thanks to this loan, side hustles, new job, etc.).

Do you have credit card debt and are you paying too much in interest? Have you considered taking out a personal loan to get rid of your debt? What are your thoughts about personal loans? Between personal loans vs credit cards, which one would you choose?

Allan is a recognized personal finance expert and founder of The Practical Saver. His expertise has been featured in Business Insider, MSN, U.S. News and World Report, Yahoo Finance, NerdWallet, GoBankingRates, AOL Finance, CreditCards.com, HuffPost, Debt.com, Zillow, and Mass Mutual. Read more

I totally agree with taking personal loans over high-interest credit cards. Unless you can get a card with a 0% APY introductory offer, and you’re confident you can pay the debt before the intro period expires.

That’s how I borrowed money to get a new computer without paying any interest. It was a two-year intro period, so I just divided the total cost by 23 months (1 month buffer!) and paid that much each month to make the computer fit in my budget.

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About Allan Liwanag

Allan is a recognized personal finance expert and founder of The Practical Saver. He paid off his $40K and saved $70K, at the same, in 2.5 years under $39K/year salary.

His expertise has been featured in Business Insider, MSN, U.S. News and World Report, Yahoo Finance, NerdWallet, GoBankingRates, AOL Finance, CreditCards.com, HuffPost, Debt.com, Zillow, Mass Mutual, and various local media outlets. Read more

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I am Allan Liwanag – The Master of Practicality. My family was indebted for $40K in 2013. Five years forward, we have saved more than $400K. We did that with trick-less, simple, effective money management that most people tend to overlook.